Does your business regularly use electronic signatures to sign documents? Make sure the right business structure is in place to ensure you have authority to do so.

The recent NSW Court of Appeal decision of  Williams Group v Crocker [2016] NSWCA 265 has provided some clarity as to the use of electronic signatures in executing business documents. Particularly, it has been made clear that any business relying on this form of execution should have in place a business structure and policy to ensure the appropriate authority and ratification has been obtained before applying electronic signatures.

Members of the profession have suggested that electronic signature applications should employ a two-step verification process to ensure the appropriate authority has been obtained. However, until this has been tested and upheld in court, an internal procedure for signing should also be put in place.

What documents can I apply an electronic signature to?

The Electronic Transactions Act 1999 (Cth) (Commonwealth ETA) provides that a document signed electronically will not be deemed invalid simply by virtue of the fact it has been executed electronically (either wholly or partly). However, the law does restrict the application of electronic signatures on certain types of documents.

This is the case with documents executed in accordance with the Corporations Act 2001 (Cth) (the Act).

Often banks and corporations will require important transactions and agreements to be executed in accordance  with  s  127(1)  of  the  Act  due  to  the  protections  afforded  to  both  parties  in  the agreement. Where this is the case, and as a general rule, electronic signatures cannot be used for this form of execution.

However, a large class of documents remain whereby the option to sign electronically will be available if required by businesses. These documents can range from business to business transactions, general commercial deeds and heads of agreements, with the main characteristic of these documents being that execution is usually only required by an agent authorised to act on behalf of the business, rather than through the Act.

It is in these instances in which NSW Court of Appeal sought to clarify.

What are the requirements for signing electronically?

The issue raised in Williams Group v Crocker, and an issue faced by many businesses engaging in this form of execution is that often the signature is not applied to a document by the signature them self, but rather an assistant or agent acting on their behalf. The question before the court then is was their authority to act on their behalf?

The court commented that to establish actual authority a clear chain of communication should be present, or at least in the event of ostensible authority, a representation should be made to the benefitting party stating the person applying the signature was authorised to do so.

Where this does occur, courts held that to remove any question of actual authority, a clear chain of communication demonstrating authority to act should be evident, or at least ostensible authority

should be made out by a  representation to the benefitting party that the person applying the signature was authorised to do so. It becomes clear then that every business engaging in the use of electronic signatures should have a clear procedure ensure this authority is obtained.

But what does this procedure look like?

The NSW Court of Appeal did not provide any clarification on the operation of this process.

It may be that every step of correspondence be documented to provide proof of authority. It may be that a secure login should be used for all applications of electronic signatures. Or it may be that a disclaimer accompanies every executed document that it has been signed electronically with the necessary authority.

It is likely all of these precautions will need to be followed until parliament adopts the recommendations like that in Williams Group v Crocker and begins to legislate on the shortcomings of the law in relation to 21st century technology.